When "Lindy" was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband "Ted," she panicked. She would have asked her lawyer for guidance, as 79% of divorcing individuals end up doing, but she was not sure that her lawyer could give her the guidance she needed.
The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision "on the steps of the courthouse," so she said no.
Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce, including shorter-term tax issues and longer-term financial planning issues, have become terribly complex. Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, they are unable to counsel their clients in depth on the financial implications of divorce, which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces. According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations, and 40% of those mediating their divorces feel the same way.
No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.
In Lindy's case, she was fortunate to be referred to a divorce financial planner by a divorce coach. Divorce financial planners build on financial expertise often acquired by certified financial planners (CFP) or certified public accountants (CPAs). They also often hold the certified divorce financial analyst (CDFA) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, divorce financial planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning. They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?
As with other financial specialists, divorcing couples and individuals are usually better off picking a fee-only divorce financial planner who will have his or her clients' best interests at heart. A great resource to find one is Association of Divorce Financial Planners (ADFP).
In Lindy's case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony. However, Ted's offer was still not clear about his employee stock options, as he did not know how to value them. Plus, the offer did not address the issue of college funding for their 13-year-old daughter.
Lindy's divorce financial planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer.
After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy's lawyer was happy with the process, as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.
Chris Chen, CFP®, CDFA, is the founder of Insight Financial Strategists, LLC, a fee only investment advisory firm in Waltham, Mass. He specializes in retirement planning and divorce financial planning for professionals and business owners. Chris is a member of the Financial Planning Association and the Massachusetts Council on Family Mediation. He is on the Board of Directors of the Association of Divorce Financial Planners.
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
'Boomer Candy' Investments Might Seem Sweet, But They Can Have a Sour AftertasteProducts such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
-
Quick Question: Are You Planning for a 20-Year Retirement or a 30-Year Retirement?You probably should be planning for a much longer retirement than you are. To avoid running out of retirement savings, you really need to make a plan.
-
Don't Get Caught by the Medicare Tax Torpedo: A Retirement Expert's Tips to Steer ClearBetter beware, because if you go even $1 over an important income threshold, your Medicare premiums could rise exponentially due to IRMAA surcharges.
-
I'm an Insurance Pro: Going Without Life Insurance Is Like Driving Without a Seat Belt Because You Don't Plan to CrashLife insurance is that boring-but-crucial thing you really need to get now so that your family doesn't have to launch a GoFundMe when you're gone.
-
I'm a Tax Attorney: These Are the Year-End Tax Moves You Can't Afford to MissDon't miss out on this prime time to maximize contributions to your retirement accounts, do Roth conversions and capture investment gains.
-
I'm an Investment Adviser: This Is the Tax Diversification Strategy You Need for Your Retirement IncomeSpreading savings across three "tax buckets" — pretax, Roth and taxable — can help give retirees the flexibility to control when and how much taxes they pay.
-
Could an Annuity Be Your Retirement Safety Net? 4 Key ConsiderationsMore people are considering annuities to achieve tax-deferred growth and guaranteed income, but deciding if they are right for you depends on these key factors.
